Something unprecedented happened in the financial markets on Wednesday night, while trading went on in Asia. For the first time ever, the yield on 30-year U.S. Treasury bonds slipped below 2 percent.
This may not sound like scintillating news. And it’s true that the exact threshold doesn’t matter that much. But it does underline two important things.
A: People are clearly very worried about the direction of the world economy. Bond yields fall when prices rise, which tends to happen when investors get scared about growth and start looking for safe places to put their money. Right now, yields are plummeting all around the globe, even on very long-term bonds that usually offer much higher interest rates because between President Donald Trump’s trade war, Brexit, trouble in China, and other assorted issues, the worldwide risk of recession feels like it’s growing.
B: Washington could borrow a huge amount of money right now without having to worry much, if at all, about the consequences over the next few decades. As a rule, governments can sustain high levels of debt pretty much indefinitely as long as their interest payments are lower than the rate of economic growth. (I’m simplifying things, but bear with me.) Right now, we could in theory lock in nominal interest rates below 2 percent for a good long while. The country is also almost certainly capable of growing faster than that.
One obvious way to fix situation A would be for the U.S. to take advantage of situation B: Borrow tons of money at low interest rates, and spend it on stuff we need. Trump wants a $1 trillion infrastructure plan? Fine. Now’s the time to debt-finance it. We can afford it, and it might help both the U.S. and the world economy avoid a downturn. This would also be a very good time to finance an expansive plan to combat climate change. Borrow a few trillion, throw it in a giant Green New Deal fund, and use it to pay for the sort of aggressive action necessary to eventually reach zero net emissions.
Unfortunately, Donald Trump is president, so taking steps to avoid ecological disaster isn’t really on the table. And since some Republicans are still allergic to domestic spending on anything but tax cuts, a massive transportation bill doesn’t look realistic either.
We should be taking advantage of the current state of the bond market to borrow gobs of cash in order to fix the country, bolster the economy, and save the planet. We probably won’t. It’s criminally negligent.